Compliance Blog

Yesterday, NCUA released Letter to Credit Unions 08-CU-20 to alert credit unions to a Supervisory Letter that it delivered to its field staff in August.  You can access the Supervisory Letter here.   Together, this guidance hammers away at the importance of risk management in today's environment.

In the Supervisory Letter, NCUA touches upon the following subjects:

• The changing credit union business model and balance sheet composition and the challenges it creates
• Present mortgage and real estate market and the related expectations for credit unions and examiners
• The Risk Focused Examination (RFE) supervision program with an emphasis on district management and off-site monitoring.

NCUA, in the Letter to Credit Union, picked a few things to highlight from the Supervisory Letter:

1. Credit union balance sheets and operational strategies have changed over the past decade. There is presently much higher reliance on long-term loans which are funded by more volatile sources. New delivery channels and increased use of outsourcing have allowed for rapid changes to the structure of the balance sheet and the risk profile of credit unions.
2. Recent high profile credit union failures resulted from rapidly changing balance sheet structures arising from third-party relationships, combined with a lack of prudent risk management policies and practices. Several of the lessons learned from these failures are included throughout the Supervisory Letter.
3. Declining real estate values result in the potential for elevated levels of credit risk on credit union balance sheets. While credit unions do not widely offer non-traditional mortgage products or participate in subprime lending, the declines in real estate value and accompanying increase in foreclosures affect credit unions across the country.
4. The issues impacting the mortgage market are spreading to other lending products. While the Supervisory Letter primarily addresses the potential risks in real estate lending, many of the principles discussed can be applied to other loan products.

The guidance is a must read for those responsible for risk management at your credit union.  And remember: Supervisory Letters are sent to all field staff.  So your examiners will be reading this.  That's all the more reason why you should as well.

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The nights are cooler.  The days are shorter.  Yes, football is back. 

Just to give you a glimpse of NAFCU on a Monday in the fall, your team at NAFCU includes graduates or fans of:  Michigan, Ohio State, Virginia, the Naval Academy, Wisconsin, Kentucky, Nebraska, Florida State, Penn State, Notre Dame, Pitt, Michigan State, Oregon, Marshall and Maryland. 

If you call NAFCU on a Monday, you may talk with someone who seems overly gloomy or giddy.  Don't worry.  It isn't you.  It's just the season for such things.  And if you reach someone who is gloomy, just call back on Thursday or Friday. 

As hope springs eternal.